The Rise of Consumer AR in China

When the smash-hit mobile gaming application Pokémon GO swept the globe last summer, the disruptive potential of augmented reality (AR) was thrust into the spotlight. It became the fastest game ever to reach $600 million in revenue, which it did in just a few months. While time has taken some of the fizz out of the app, its popularity endures: it still rakes in $2 million every day, according to Newzoo, the games market intelligence firm. Pokémon GO proved not just that AR is a good money-spinner, but that consumer interest in the technology is high.

That appetite appears to be most ravenous in China, where all signs point to strong consumer adoption rates for AR. Goldman Sachs predicts that AR and virtual reality (VR) is a global market that will be worth $80 billion by 2025. Mainland China already accounts for one-third of the sales of headsets that power high-end AR experiences. Data from IDC suggest that AR/VR device sales in China will expand four-fold through 2017 after surging by 325% last year, led by screen-less head-mounted displays that typically use a mobile phone, such as the Mira Prism.

Recent research from Worldpay based on a survey of 16,000 people worldwide indicated that 95% of Chinese consumers have used AR or VR technology in the past three months. The same research found that only 24% of U.S. consumers had used the technologies. And a survey of 2,000 Chinese Internet users by iResearch Consulting Group found that 78% proactively seek out AR products to try.

There are several reasons why China is uniquely positioned to be a global leader in the AR space. First, the country has massive Internet user and mobile populations. More than half of China’s population—688 million people—are online, with 620 million of them accessing the web through their mobile phones—the rails upon which most AR applications run.

China’s population of Internet users has nearly doubled since 2009. This gives the Chinese pioneers of AR—such as Baidu, the “Google” of China—a huge market for AR content. It doesn’t hurt that Chinese consumers are famously open minded to adopting new technologies.Baidu’s Chief Scientist Andrew Ng told Forbes recently that for this reason, AR has a far brighter future in China than even the U.S., which has a smaller mobile Internet population, according to data from Statista.

Baidu last year unveiled an AR platform called DuSee that lets China’s mobile users test out AR on their existing smartphones, thus quickly bringing the technology to a huge population. Baidu has created AR experiences for its suite of apps that collectively reach more than one billion monthly active users.

China also has the infrastructure in place for consumers to become familiar with the technology. Stores offering AR and VR experiences have blossomed in Chinese malls, with an estimated 3,000 stores offering this perk, charging as little as $8 for about 30 minutes of play. Landmark Entertainment Group, known for creating U.S. theme park attractions like Terminator 2 3D and The Amazing Adventures of Spider-Man 5D, is building an AR entertainment destination that will launch in China in the coming years.

China will be a promising market for AR entertainment such as video and gaming content. China’s Ministry of Industry and Information Technology has said it expects immersive video and game apps to be among the first segments of the industry to mature. About 504 million Chinese consumers are already regularly using streaming websites, and China has nearly 400 million online game players, according to China’s Internet Network Information Center, which may help AR broadcasting and gaming to catch on quickly. Tencent has already begun live-streaming virtual concerts for music artists, has bought the rights to 300 Japanese anime franchises, and is expected to, as a result, add more AR smartphone games—a potentially lucrative market. Online game revenue is expected to grow from 143 billion yuan last year to 251 billion yuan by 2018, according to IResearch.

In addition to the quick adoption of AR by Chinese consumers, business applications are blossoming — an immediate and profitable avenue for growth. Baidu, for example, joined forces with Yum! Brands in 2016 to launch an AR smartphone game to 300 KFC outlets in Beijing.

The game incentivized consumers with the offer of winning discounts on meals. Baidu said that the game was played 400,000 times within three days of going live. Tencent and Alibaba have also partnered with brands, using AR mobile apps to help lure consumers to their stores. More than 20 businesses, including Uniqlo and Coca Cola, teamed up with Ant Financial, Alibaba’s finance business, alone.

While consumer and business adoption point to a bright future for AR in China, and there are clear advantages it has over the U.S., both markets are distinct and different. Only time will tell which one comes out on top. Yet there is a key challenge the AR industry faces in China: regulation. It is worth noting that despite the massive success of Pokémon GO, the app remains banned in China. It’s likely that the AR industry will face the same challenges in China that the Internet industry has historically faced with regards to censorship and a marketplace stacked in favor of local competitors. Ambitious foreign companies seeking to break into the AR market in China should proceed with caution.